F45 Training Holdings, Inc.

F45 Training Holdings, Inc. (FXLV) Made False and Misleading Statements in Support of its IPO

A shareholder filed a class action on behalf of all persons and entities that purchased or otherwise acquired F45 Training Holdings, Inc. (NYSE: FXLV) shares pursuant to the Company’s July 16, 2021 initial public offering (“IPO”). The complaint alleges violations under the Securities Act of 1933. F45 is a fitness franchisor with a business model based on rapid growth through the franchising of low-overhead fitness facilities. At the time of the Company’s IPO it maintained 2,801 franchises in 68 countries.

According to the complaint, F45 went public on July 16, 2021, issuing 18.75 million shares at $16.00 per share. F45’s Registration Statement in support of its IPO represented its advantage over traditional owner-operated fitness facilities both because the franchise model “has enabled us to open new studios at an accelerated pace versus the owner-operator model” and because it generated quick revenue for the Company because “[f]or the majority of franchises that we sell, we receive an upfront payment from the franchisee.” However, defendants’ Registration Statement was false and misleading regarding the Company’s revenue stream and its ability to maintain its rapid expansion business model.

In its Prospectus, the Company noted that it intended to emphasize the growth of multi-unit franchisees over single-unit franchisees, stating that “[a]s we pursue opportunities to develop multi-unit franchise systems with financial partners, we expect the percentage of multi-unit franchisees to increase over time.” However, defendants failed to disclose that F45 could not maintain new franchise growth because it was offering more favorable payment terms to multi-unit franchisees.

In truth, as of the July 2021 IPO and as the Company would later acknowledge, F45 provided for “modified” payment terms for “large multiunit deals.” This would and did ultimately result in material increases to accounts receivable and lower cash flow for the Company. F45’s approach to starting new franchises was not sustainable over the long term as the Company was not being, and would not be, repaid by multi-unit franchise owners quickly enough to maintain significant franchise growth.

On July 26, 2022, F45 issued a press release titled “F45 Training Announces Strategic Update” describing “strategic updates to align the Company more closely with macroeconomic conditions and current business trends and prepare for the next phase of studio and membership growth.” According to the press release, the Company’s “strategic updates” informed the market: (1) of a significant reduction in its financial guidance, from a range of $255 to $275 million to a new range of $120 to $130 million; (2) of a dramatic cut in the number of new exercise studios that it would open in 2022- down approximately 60% (or 350 to 450 new studios, versus 1,000); (3) that a $250 million credit line “will not be available”; (4) that it was letting go of about 110 employees, equaling approximately 45% of its workforce; and (5) that CEO, Adam Gilchrist, had resigned his position as CEO, effective July 24, 2022. On this news, the price of F45’s stock plunged over 60%, to close at $1.35 per share on July 27, 2022, representing more than a 78% decline from its offering price.


What Now: Shareholders who acquired shares of F45 Training Holdings, Inc. pursuant to the Company’s July 2021 IPO, must file their papers to be appointed lead plaintiff for the class by February 6, 2023. A lead plaintiff is a representative party acting on behalf of other class members in directing the litigation.  You do not have to participate in the case to be eligible for a recovery.

All representation is on a contingency fee basis. Shareholders pay no fees or expenses.

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